Does brand management of corporate reputation translate into higher market value?

Abstract

Brand associations affect image and one source of brand association is a company's reputation. While the relationship between a positive corporate reputation and operational performance is intuitively appealing, there has been relatively little empirical research. This study, using a comprehensive approach, seeks to empirically test the relationship and thereby determine whether firms with a positive brand image, that is those with a positive reputation, experience an economic benefit. Findings are that these firms are associated with a significant market-value premium, superior financial performance, and lower cost of capital. Given these findings, marketing managers would do well to strive to build and maintain a positive reputation.

Keywords:

• corporate reputation
• brand management
• brand image

Notes

1. The 2005 list was available at the time we began this study but 2005 financial and market data were not. Thus our terminal year is 2004. Because our empirical models require some lagged data, our final time-series is three years – 2002 through 2004. This period is arbitrary so we also conducted our statistical tests on the four years covered by the Most Admired list and none of our results are qualitatively different.

2. Abarbanell and Bernard (2000) report consistent results for abnormal earnings calculated with discount rates ranging from 9 to 15%. Their calculations hold rates constant across time and firms. As a robustness test, we also calculate abnormal earnings using rates from 8 to 12% and our findings are qualitatively unchanged.

3. These tests examine medians as opposed to means because our sample includes a few extremely influential observations that skew the mean and impede our understanding of overall trends.